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Is ATA Inc’s (NASDAQ:ATAI) CEO Being Overpaid?

Kevin Ma has been at the helm as CEO of ATA Inc (NASDAQ:ATAI), which has grown to a market capitalization of $120.41M. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. I will break down Ma’s pay and compare this to the company’s performance over the same period, as well as measure it against other US CEOs leading companies of similar size and profitability. See our latest analysis for ATA

Did Ma create value?

Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. Recently, ATAI delivered negative earnings of -CN¥2.7M , compared to the previous year’s positive earnings. Furthermore, ATAI hasn’t always been loss-making, with an average EPS of CN¥0.99 over the past five years. In the situation of unprofitability the company may be facing a period of reinvestment and growth, or it can be a sign of some headwind. In any event, CEO compensation should represent the current state of the business. From the latest financial statments, Ma’s total compensation fell by a minor -2.21%, to CN¥0. Furthermore, Ma’s pay is also made up of non-cash elements, which means that fluctuations in ATAI’s share price can affect the true level of what the CEO actually takes home at the end of the day.

Is ATAI’s CEO overpaid relative to the market?

Though there is no cookie-cutter approach, as compensation should be tailored to the specific company and market, we can gauge a high-level yardstick to see if ATAI deviates substantially from its peers. This outcome helps investors ask the right question about Ma’s incentive alignment. On average, a US small-cap is worth around $1B, creates earnings of $96M, and pays its CEO circa $2.7M annually. Usually I would look at market cap and earnings as a proxy for performance, however, ATAI’s negative earnings lower the usefulness of my formula. Analyzing the range of remuneration for small-cap executives, it seems like Ma is being paid within the bounds of reasonableness. Overall, even though ATAI is loss-making, it seems like the CEO’s pay is sound.

What this means for you:

Are you a shareholder? CEO pay is one of those topics of high controversy. Nonetheless, it should be talked about with full transparency from the board to shareholders. Is Ma remunerated appropriately based on other factors we have not covered today? Is this justified? As a shareholder, you should be aware of how those that represent you (i.e. the board of directors) make decisions on CEO pay and whether their incentives are aligned with yours. To find out more about ATAI’s governance, look through our infographic report of the company’s board and management.

Are you a potential investor? While CEO compensation is a good indication for how well-aligned the company leader is its investors, it is certainly not enough to simply base your investment decision on this metric. Regardless of whether Ma’s pay is above or below peers, the more important factors to look at is ATAI’s track record of performance and future outlook moving forward. To research more about these fundamentals, I recommend you check out our simple infographic report on ATAI’s financial metrics.

PS. If you are not interested in ATA anymore, you can use our free platform to see my list of over 50 sustainable companies producing great returns. To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.